FX Markets

Posted on March 04,2021 by bestbrokerAdmin

What is the Foreign Exchange Market?
Most commonly referred to as 'Forex',  'the currency market' or simply 'FX', it is by far the world's largest market by volume with over $5 trillion traded daily. With the advent of Internet Trading in the mid 90's, the number of participants in the market has swelled way beyond its roots which can be traced back all the way to the 6th century! The modern market as we know it today began forming during the 1970s.

Today the Forex market can be described as a global decentralized exchange through which market participants determine the exchange rate for every currency. It covers all aspects of buying/selling and exchanging currencies at the current given price. Simply put, it is a way of trading two currencies against one another.

Who are the Market Participants?
At the top of the market sits the interbank foreign exchange market. This is made up of the largest commercial banks and securities dealers. It is these top-tier interbank market accounts that account for over 50% of all transactions. These transactions are typically very large, often involving hundreds of millions of dollars. The remainder of the volume is generated by a mixture of the below entities:

  • Companies
  • Central banks
  • Foreign exchange fixers
  • Investment management companies
  • Retail traders
  • Money remittance companies
Trading Characteristics
Top 20 most traded currencies by value:

Rank Currency (symbol) % of daily trades (bought or sold)
1
United States dollar
USD (US$)
88.3%
2
Euro
EUR (€)
32.3%
3
Japanese yen
JPY (¥)
16.8%
4
Pound sterling
GBP (£)
12.8%
5
Australian dollar
AUD (A$)
6.8%
6
Canadian dollar
CAD (C$)
5.0%
7
Swiss franc
CHF (CHF)
5.0%
8
Renminbi
CNY (元 / ¥)
4.3%
9
Hong Kong dollar
HKD (HK$)
3.5%
10
New Zealand dollar
NZD (NZ$)
2.1%
11
Swedish krona
SEK (kr)
2.0%
12
South Korean won
KRW (₩)
2.0%
13
Singapore dollar
SGD (S$)
1.8%
14
Norwegian krone
NOK (kr)
1.8%
15
Mexican peso
MXN ($)
1.7%
16
Indian rupee
INR (₹)
1.7%
17
Russian ruble
RUB (₽)
1.1%
18
South African rand
ZAR (R)
1.1%
19
Turkish lira
TRY (₺)
1.1%
20
Brazilian real
BRL (R$)
1.1%
Ways to trade Forex
The most common way that retail investors like you and I engage in the forex market is through spot trading. This simply means that you are entering into a direct exchange between two currencies that you wish to trade. As an example, that could be the most popular Forex pair; EURUSD. Spot trading has the shortest time frame and is executed using cash. This is the most popular way retail traders conduct forex trading.

There are a number of other ways of trading Forex, such as futures and options but these types of trades don't tend to suit a retail investor seeking their very first position in the market. Instead, these types of positions are typically reserved for multi-national companies seeking to hedge their existing positions.

To see which Forex brokerages we recommend click here